Long-term buying opportunities in silver and gold

Avi Gilburt is author of
ElliottWaveTrader.net, a live trading room and member forum focusing on
Elliott Wave market analysis. Avi emphasizes a comprehensive reading of charts
and wave counts that is free of personal bias or predisposition. A lawyer and
accountant by training, he is also managing member of Gilburt Financial
Services, LLC, which provides financial markets analysis and consulting. His
Elliott Wave analysis appears frequently on sites such as SeekingAlpha, where he
is a certified contributor, and
TheTechTrader.com with Harry Boxer.

Since the market began this rise from the summertime lows, I have stated repeatedly that the pattern did not provide a clear 5 wave move off the lows to begin the rally. This has made me very suspicious of this rally even though almost everyone else was seeing this as the start of the expected parabolic 5th wave rally.

At this point in time, with the decline we have seen thus far, I am now heavily leaning toward the recent bottom only being an a-wave of a larger a-b-c decline to complete the e-wave of a larger wave (4) triangle in the metals. While silver
SLV, -0.07%
hit our target almost to the penny at 30.75, gold
GLD, +0.63%
broke down below our ideal target level.

Furthermore, when we have seen the metals in true bullish form, they have rarely retraced below the .382 retracement levels. For now, both metals have dropped below those levels. Lastly, the rally off the recent lows that we saw this past week was on very weak volume. This is usually indicative of corrective action, especially when a 3rd wave in the metals would have exhibited major buying volume.

From a technical perspective, the daily chart has not provided us with a low on clear positive divergence. This is something that we have seen on 90% of the bottoms in the metals. While we may want to consider this time as within the minority 10%, I think I will err on the side of the greater probability and look for new lows made on positive divergence.

So, for now, I think the metals are more likely a short-term shorting opportunity for only very aggressive traders. Ultimately, I would not want to see GLD over the 170 resistance level or silver over the 33.40 resistance level. This would set up a c-wave down which should target at least the 29.70 level in silver and at least the 158 region in GLD. Clearly, we may see a deeper drop than those levels, but they would be my minimum targets for another decline.

As I am sure many of you are now thinking to yourself: What would make me change my mind about this possibility? Well, if we see the metals begin to rally on massive buying volume and move beyond the cited resistance levels with such large buying volume, then I may reconsider my perspective.

Alternatively, I still want to point out that new lows are not out of the question, even though they are less likely at this time. But, even so, we need to maintain the appropriate perspective. The larger pattern in the metals seems to suggest that new all-time highs are still highly likely, which makes these drops long-term buying opportunities. So, please do not lose site of the forest while analyzing the trees and leaves, as we expect silver to potentially double from the current levels.

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